Out of the frying pan into the frying pan…Tim Price



7th January 2013
Out of the frying pan into the frying pan
“The skill of the sports player is not the result of superior knowledge of the future, but of an
ability to employ and execute good strategies for making decisions in a complex and changing
world. The same qualities are characteristic of the successful executive. Managers who know the
future are more often dangerous fools than great visionaries.”
– John Kay, ‘Only fools claim to know the future’.
Only fools and economists, that is (this is known as tautology). Of the money routinely misspent
in the financial markets, that misspent on economists is surely the most egregious. Any strategist,
investor or fiduciary knows that he may be wrong – but only the economist has the potential to
be wrong at least twice. Once in the overconfident forecasting of future economic trends, and
once again in extrapolating from those dubiously forecast economic trends to make deductions
about the likely investment outcome. “I may be only a fish and chip shop lady,” said Pauline
Hanson, “but some of these economists need to get their heads out of the textbooks and get a job
in the real world. I would not even let one of them handle my grocery shopping.”
The dawning of a new year is invariably a time for forecasts. One of our new year’s resolutions for
2013 is not to join the crowd in issuing them. Another is not to waste any time in reading them.
Having spent at least the last decade honing an investment approach designed to be proof against
the very worst that an imperfect world, politicians, bankers and other investors can throw at it, it
would be a capitulation at this stage to suddenly subcontract asset allocation or investment
selection to somebody else’s subjective assessment of the world or any given asset class, worse
still to any economist. And yet, we still devour investment commentary as if there were some
unfound nugget of wisdom and insight that, once located, would finally reveal all the investment
Personal finance journalist Ian Cowie last week confessed (in his article ‘Bond bubble fears and
why I took the biggest bet of my life’) that he had sold all the bonds in his company pension to buy
shares instead. His arguments are all rational:
 He expects bond prices to fall when interest rates rise, which is almost a mathematical
 Interest rates have sunk to derisory levels and can barely go lower;
 Gilts are by no means as riskless as conventional thinking dictates;
 Gilts are by any sensible analysis ridiculously overvalued.

Goto web

Tim Price
Director of Investment
PFP Wealth Management
7th January 2013. Follow me on twitter: timfprice
Email: tim.price@pfpg.co.uk Homepage: http://www.pfpg.co.uk
Weblog: http://thepriceofeverything.typepad.com Bloomberg homepage: PFPG <GO>


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